Call for cuts in VAT rates

The government should cut the rate of value-added tax from the present 15 percent and keep essential commodities out of the purview VAT to reduce burden on consumers, especially low-income people.

Former adviser to the caretaker government AB Mirza Azizul Islam made the call at a discussion organised by the Centre for Policy Dialogue on concerns and implementation challenges of VAT and Supplementary Duty Act 2012.

State Minister for Finance and Planning MA Mannan also supported the view at the programme at Six Seasons Hotel in the capital.

"VAT as an indirect tax is shifted forward to consumers. The impact of such taxes on low-income people is higher," Islam said, adding that VAT rates in most Asian countries are low.

A low rate of VAT improves compliance and reduces adverse impact on equity and inflation, he said.

Mannan said the VAT rates can be reconsidered to rein in inflation and encourage consumption. No VAT should be imposed on commodities consumed by low-income people, he said.

The law, which was passed in 2012, brings all sectors under the purview of VAT. The law has increased documentation requirements for firms and given additional power to revenue officials to recover arrears.

Businesses at the discussion said the authorities had consulted them but their concerns were not reflected in the law.

Jahangir Hossain, member (VAT policy) of the National Board Revenue, said the aim of the law is to make the VAT system modern and business-friendly and remove distortion that was present in the first VAT law. Towfiqul Islam Khan, a research fellow of the CPD, said taxation should be based on broader development objectives.

He said taxation has four roles, including being a source of government revenue. It provides finance for public services and investment, and is used as a strategic tool for the government to promote certain sectors to support investment, economic growth and employment. Taxation is also an instrument to ensure social and economic equity and justice, he said.

"But it seems that the ongoing taxation reform agenda in Bangladesh is more biased towards the first two roles. The policymakers will need to consider the latter two roles with similar importance."

Ahsan H Mansur, executive director of Policy Research Institute, said compliance with the VAT law is very poor. Only 35,000 out of seven lakh registered entities submit VAT returns, he said.

Mansur, who was involved in drafting of the new law, said the government should implement the law if it really wants to offer a modern taxation system and create an even-playing field. Large development projects cannot be financed without a rise in tax collection, he said.

Kazi Akram Uddin Ahmed, president of the Federation of Bangladesh Chambers of Commerce and Industry, said businesses were consulted before finalising the law.

He also called for a tax collection system free from harassment.

CPD Executive Director Mustafizur Rahman said VAT has an impact on competitiveness of businesses, and social justice and employment.

Zahid Hussain, lead economist of World Bank in Bangladesh, said the taxation system should be both business and economy friendly.

Aminur Rahman, a former NBR member, said the culture of maintaining accounts and records is poor in Bangladesh.

Muhammad Abdul Mazid, a former NBR chairman, also spoke.